Lt Gen Shah assumed office yesterday, marking an end to what had virtually become a stand-off between the government and the military on the posting, Dawn reported today.
He replaced retired Lt Gen Alam Khattak, who completed his two-year contract on August 5.
Shah had retired from military service earlier this year. His last posting was adjutant general of Pakistan Army.
The army had recommended Shah's name to the government for appointment as the defence secretary long before Khattak completed his tenure. The government rejected the nomination and asked the army to nominate some other officer.
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The army, according to insiders, refused to change the nomination and insisted that Gen Shah must be appointed.
The government then considered different options including continuing with Maj Gen Abid Nazir as the acting secretary till the succession in military in November; and appointing a civilian bureaucrat.
However, Prime Minister Nawaz Sharif's advisers counselled him to avoid straining relations with the military on the issue and accept Lt Gen Shah's nomination.
Lt Gen Shah's appointment coincided with the easing of friction between the military and the government on progress in implementation of the National Action Plan (NAP) against terrorism after Sharif constituted Implementation and Review Committee of NAP under National Security Adviser retired Lt Gen Nasser Khan Janjua.
A day before the defence secretary's appointment, the government appointed retired Lt Gen Muzamil Hussain as head of the Water and Power Development Authority.
Principal Information Officer Rao Tehsin rejected the reports of the government having previously blocked Gen Shah's appointment. "It is not true. (We) Categorically reject such reports based on speculations," he said in a written reply.
The office of the defence secretary is the highest bureaucratic office in the defence ministry, but has a diminished role with the real powers resting with the army chief.
The Pakistan People's Party government removed retired Lt Gen Naeem Lodhi at the peak of Memogate in January 2012 and gave Nargis Sethi, a civilian bureaucrat, additional charge of the ministry for seven months before reverting to the agreed arrangement in July 2012 by appointing retired Lt Gen Asif Yasin Malik.